The finance ministers of the euro zone have met in Brussels to discuss the ongoing Italian budget crisis.
The dispute is likely to escalate in coming weeks unless Rome revises its free-spending plans, EU officials said.
Pierre Moscovici, EU Finance Cominissioner: "If the idea is that we have already taken decisions, its fake news. It's a wrong idea. We are walking step by step in the spirit of dialogue. But, of course, according to rules - and the rule are quite precise - we need to make sure that the Italian debt does not rise.”
Austria's finance minister Hartwig Löger now sees the ball clearly in Italy's camp.
"I expect that Italy will say in which form are they ready to take measures and make changes. I hope reason will prevail."
Despite the EU warnings and market turmoil that increased Rome's debt servicing costs, Italy's eurosceptic government has not backed down from its plan.
to increase its budget deficit to 2.4 percent of gross domestic product (GDP) next year.
That could shake things up elsewhere, especially in France, says Maria Demertzis, an analyst at Brussels-based think tank Bruegel.
"French banks have a lot of Italian debt, the French economy relies a lot on the Italian economy, so if something goes wrong on the Italian italian economy either in the markets or in the debt (when) Italy is not complying with the rules, that could really hurt France.
France is of course is a strong and big economy in itself and you will see the first effects coming from a possible economic problem in Italy."
Italy's government now has until next week to come up with new ideas.